Nominal vs Real 3-Month Interest Rate: 1934-2010

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

@Veneziano — they must be using month-to-month CPI changes, which are quite volatile. Because I certainly don’t remember any minus 8 percent deflation spikes on a 12-month basis.

The past decade most resembles the 1970s, with its persistent, frequent negative real rates. What also rhymes are spikes in crude oil, food prices, gold and silver. Doh!

UK inflation was 3.7% in December. If you take that as a proxy for the US (since I don’t believe the Bureau of Lying Statisticians, who said US food prices rose only 0.1% last month), then the real rate of interest is minus 3.7 percent. That is nothing but a Bensane Bubble Machine.

The way our government measures inflation has changed at least 3 times since Reagan got elected. It is always interesting to see what they try to hide each time. I know one of the changes was to the basket of goods allowing substitution of goods if a steak goes up in price they substitute it with a ham of equal size and it also doesn’t account for the reduction in size of a package of some goods, like coffee. It used to be 32 oz, then 30 oz, now 27.5 or 28.

Each time the formula was changed, it hid inflation that the previous formula brought to everyones attention.

Interesting. I notice the big negative post WWII where rates must have been kept low even in the teeth of significant recovery. In notice some other errors, the Viet Nam War did not start in the 50s, at least for the US (France, but no the US.)

Note the very clear relationship between negative/very low real interest rates and gold prices (gold is not shown, obviously). Considering the will to keep them low, that still looks like a fairly decent investment going forward. Gold equities, too.

Say Hello

About Barry Ritholtz

Ritholtz has been observing capital markets with a critical eye for 20 years. With a background in math & sciences and a law school degree, he is not your typical Wall St. persona. He left Law for Finance, working as a trader, researcher and strategist before graduating to asset managementRead More...

Quote of the Day

"The largest Asian central banks have gone on record that they are curbing their purchases of US debt. And they are also diversifying their huge reserves, steadily moving away from the dollar. The risks have simply become too many and too serious." -W. Joseph StroupeEditor, Global Events

Sign Up For My Newsletter

Get subscriber only insights and news delivered by Barry every two weeks.